Environment in emerging and transition economies
Public and private finance for environmental and climate change programmes
As the effects of the global financial and economic crisis were having a growing impact on public budgets, and donors shifted to delivering aid via more robust, reliable and transparent country systems, the environmental sector in the countries of Eastern Europe, Caucasus and Central Asia (EECCA) became increasingly vulnerable to underfunding. Hence boosting public and private finance for environmental and climate change adaptation programmes was a key element of green growth strategies. Against this background, the work conducted under the thematic cluster of "Public and private finance for environmental and climate change programmes" aims to help EECCA countries to address the problem of chronic underfunding of multi-year environmental programmes and to use public resources in an efficient and cost-effective manner.
As part of the policy pillar of the Environmental Action Programme (EAP) Task Force Work Programme for the period 2008-2011, the work related to public and private finance was implemented through regional and national-level activities which focused on analysing prevailing practices, and promoting a better use of medium-term budgetary planning tools as well as improving programme costing and public expenditure management. In this way, the EAP Task Force continued its past analytical work on monitoring the extent and roots of limited financial sustainability exhibited by the environmental sector in EECCA, and also launched a new project aiming to clarify the sector’s ability to respond to an ever increasing in-country competition for budgetary resources. It promoted the integration of environmental policies both in national-level strategies and plans and in their related annual budgets.
The main thematic clusters of public and private finance for environmental and climate change covered the following topics:
- Mainstreaming environmental and climate change adaptation programmes into public budgets
Representatives from ministries of environment and ministries of finance participated in a regional survey launched in the context of this work stream. The survey's key objective was to map the existence of any policy-, legal-, organisational- and knowledge-related preconditions for achieving a desired level of financial sustainability in the environmental sector in the participating countries. To support the survey analysis, the EAP Task Force also conducted a country study of Ukraine.
>> Read the flagship report on Greening Public Budgets in Eastern Europe, Caucasus and Central Asia, 2011.
- Promoting better programme costing and adapted financing mechanisms
Designing medium- and long-term environmental and climate change programmes which are in line with good international practices is key to obtaining adequate resources for their implementation. The countries which develop the knowledge and practical skills to be able to develop sound public expenditure programmes - incl. for environmental projects - will be more competitive and successful not only in the management of their own financial resources but also in attracting additional funding from climate related sources (e.g. from donors, IFIs). Therefore another main focus of the EAP Task Force was on this area.
- Managing public environmental expenditure
Extensive analysis carried out by the EAP Task Force demonstrated that the governance of public expenditure in the environmental sector is often weak in the EECCA countries. The tools developed subsequently by the EAP Task Force provide a framework for streamlining environmental management into mainstream public finance.
>> Browse the publication on Good Practices of Public Environmental Expenditure Management (PEEM)
>> Read the Handbook for Appraisal of Environmental Projects Financed from Public Funds.
- Financing for environmental infrastructure
About two decades of neglecting the maintenance of environmental infrastructure in EECCA led to the accumulation of significant needs of capital investments. The EAP Task Force explored the opportunities of using local capital and financial markets as a source of long-term debt financing for environmental infrastructure. The analysis demonstrated that any strategy concerning the development of local capital and financial markets must be compatible with existing systems on which other sources of finance are based, in particular intergovernmental transfers and fiscal autonomy.
- Environmental expenditure data
The collection of high-quality and reliable environmental expenditure data is crucial for policy makers to develop effective environmental policies and for donors and IFIs to target their assistance programmes better. This information os also valuable for strengthening public participation in policy decisions in EECCA. With the assistance of the EAP Task Force, most EECCA countries were able to collect - for the first time - historical environmental expenditure data according to an internationally-recognised methodology and classification.
- Debt-for-environment swaps
Dept-for-environment swaps (DFES) may occur if debtor countries convince creditors that they are capable of allocating a sustainable part of the resources that have been budgeted for debt repayment to finance domestic projects which will yield significant environmental benefits at national, regional or global level. While DFES often involves a range of risks and management issues, it can play a significant role in mainstreaming environmental matters into government policies and in domestic environmental financing. The EAP Task Force helped two countries in EECCA in analysing options for DFES arrangements.
- Performance-based contracts between municipalities and water utilities in EECCA
As part of the reforms undertaken in EECCA countries to improve their water utilities, a number of them turned to performance contracting. In the view of supporting authorities that are willing to contractualise their relationships with the water utilities, the EAP Task Force assisted in preparing a set of recommendations for negotiating and implementing successful performance-based contracting mechanisms.
>> Read the Guidelines for Performance-based Contracts between Water Utilities and Municipalities - Lessons learnt from Eastern Europe, Caucasus and Central Asia.
- Economics of environmental compliance assurance
In response to requests from EECCA countries and in order to allow environmental regulatory agencies and inspectorates to carry out statutory functions while avoiding conflicts of interest and preventing corruption, the EAP Task Force has developed a number of tools aimed at helping governments improve their approaches of estimating budgets and ensuring adequate financing for regulatory and compliance assurance needs. These tools were then tested on the ground.
Since the launch of the "Greening economies in the European Union's Eastern Partnership countries" (EaP GREEN) programme in early 2013, the work related to public and private finance for environmental issues has been continued and is currently carried out under the Programme's Component 1: Governance and finance.
Read more about the EaP GREEN programme.
Environmental Action Programme Task Force: Greening development in Eastern Europe, Caucasus and Central Asia